Cisco warns of demand shortfall; earnings flat

Cisco reported flat earnings for the previous quarter, but on a conference call to discuss the results, Chief Executive John Chambers said he expects revenue to fall 5 percent to 10 percent in the current quarter, which began Oct. 26. That would mean revenue between $8.85 billion and $9.34 billion, far below the $10.4 billion expected by analysts polled by Thomson Reuters.

Cisco shares fell 94 cents, or 5.1 percent, to $17.39 in regular trading Wednesday. In extended trading, after the release of the results, the stock was down another 92 cents. On Oct. 24, the shares hit $15.90, the lowest level since 2003, after the Internet bubble burst.

Because Cisco's previous fiscal quarter ended Oct. 25 rather than Sept. 30, it was the first major technology company to include results for October. The global credit crisis worsened dramatically during the month, and the severity of the order downturn Cisco reported is sure to be felt at other companies.

Chambers said that as late as August, orders were up 7 percent from last year. By October, there was a 9 percent decline instead, as the business slowdown in the U.S. spread to Europe, emerging markets and Asia. Chamber's revenue projection assumes that October's order level holds through into January, be he cautioned that results could swing outside the range to either way.

The downturn also affected all of Cisco's product categories, which stretch from cable set-top boxes to giant routers directing traffic on the main highways of the Internet and in corporate networks.

Chief financial officer Frank Calderoni said the company was particularly sensitive to swings in customer demand because 84 percent of its revenue is nonrecurring. Many other technology companies derive more of their revenue under long-running service contracts.

Chambers said the company plans to cut $1 billion from its annual costs by the end of its fiscal year, by pausing hiring, cutting marketing and travel and delaying some capital projects.

That's a contrast to Cisco's optimistic stance earlier this year, when then were no talk of cutbacks and the company said it would use its cash pile, now at $27 billion, to invest through the downturn and take market share. Chambers said the company still aims to invest, particularly in the U.S., India and China.

Since the slowdown hit the U.S. first, it will be the first country to recover, Chambers said.